The FTSE 100 slid into the red after an austere spending update by Chancellor Rishi Sunak drove caution among traders.
The index had been higher in early trading but sank after Mr Sunak said that there was set to be a £394 billion budget deficit for the year and 11.3% decline in GDP as the economy was battered by the virus.
Traders elsewhere across Europe and the US had been more negative at the start of trading due to a sell-off following Tuesday’s strong gains.
London’s top flight closed 41.08 points lower at 6,391.09 at the end of trading on Wednesday.
David Madden, market analyst at CMC Markets UK, said: “European equity markets are largely lower as we approach the close of trading.
“Dealers have booked some profits form the impressive gains that were racked up yesterday thanks to vaccine hopes and optimism that President Trump will step down early next year without a tantrum.
“The FTSE 100 is underperforming its eurozone equivalents as oil, mining, pharma and banking stocks are contributing to the pressure on the UK benchmark.”
Europe’s other major markets improved marginally throughout the session, with the French Cac 40 reversing its fortunes in the afternoon.
The German Dax was completely flat while the French Cac moved 0.21% higher.
Across the Atlantic, the Dow Jones retreated after the opening bell as hopes of a smooth transition for Joe Biden’s presidency were tempered by a realisation over high coronavirus case numbers.
Meanwhile, sterling nudged marginally higher on a quiet day for currency trading despite continued anxiety over Brexit.
The pound rose by 0.14% versus the US dollar at 1.338 but was 0.02% down against the euro at 1.123.
In company news, publishing giant Future tumbled in value after it agreed a £594 million deal to buy comparison website GoCompare.
Investors were downbeat about the move, which will net insurance tycoon Sir Peter Wood another hefty windfall.
Shares in Future fell by 328p to 1,634p at the close of play.
Elsewhere, Dettol manufacturer Reckitt Benckiser (RB) made gains after analysts at Jefferies highlighted a “high level of confidence in RB’s new leadership team” from investors.
Shares moved 134p higher to 6,444p after it also disclosed that chief Laxman Narasimhan purchased just over £500,000 worth of shares.
Virgin Money finished in the red after posting a 77% plunge in full-year underlying profits, after booking a £501 million hit as it braces for economic fallout from the second coronavirus lockdown.
It closed 7p lower at 140p after it also reported underlying annual pre-tax profits of £124 million.
AIM-listed car dealer group Cambria Automobiles closed 0.5p higher at 57p after it revealed trading ahead of expectations, with a 4.4% decline in operating profit.
The price of oil moved higher again on increased chatter that OPEC will not ease up on productions cuts.
The price of a barrel of Brent crude oil increased by 1.24% to 48.32 US dollars.
The biggest risers on the FTSE 100 were Unilever, up 220p to 4560p, Fresnillo, up 39.5p to 1,087.5p, Flutter Entertainment, up 360p to 13,300p, Sage Group, up 15p to 594.6p, and United Utilities, up 22p to 918.2p.
The biggest fallers on the FTSE 100 were Aveva Group, down 821p to 3,295p, Barclays, down 6.8p to 143.4p, Rolls-Royce, down 4.85p to 110.9p, Next, down 262p to 6,546p, and Whitbread, down 121p to 3,166p.